The global economic prospects have been severely dented by the COVID-19 pandemic. This medical-cum-economic emergency has caused massive dislocations in global production, supply chains, trade, tourism and domestic economies. Initially, the United Nations Conference on Trade and Development (UNCTAD) estimated a $1 trillion (Rs 71.43 lakh crore) hit to the global economy. But a new analysis by the UNCTAD ‘The COVID-19 Shock to Developing Countries: Towards a ‘whatever it takes’ programme for the two-thirds of the world’s population being left behind’ estimates that the world economy will go into recession this year with a loss of trillions of dollars of global income.
Global financial markets are experiencing extreme volatility; global commodity prices, especially of crude oil, have declined sharply. The UNCTAD estimates a USD 2 trillion (Rs 151 lakh crore) to USD 3 trillion (approx Rs 220 lakh crore) financing gap facing developing countries over the next two years.
COVID-19 impacted economic activity in India directly due to lockdowns, and through second round effects operating through global trade and growth. This crisis was initially estimated by the UNCTAD to set back the Indian economy by $348 million (Rs 26,415,636,000) because of devastation across industries, e.g., airlines, road and rail transport, automobiles, hospitality, meat and poultry, films, music, sports, advertising, media, retailers, tourism, etc. and supply chain disruptions. But the present damage estimates are far greater.
As on April 5, 2020, the unemployment rate has jumped three-fold to 30 per cent in urban areas and 21 per cent in rural areas in a fortnight (CMIE). At the All India level, it is an all-time high of 23.40 per cent. This explains the exodus of migrant labourers from cities to their villages and total stoppage of farm- based activities.
India announced an economic stimulus package worth Rs. 1.70 lakh crore ($22.5 billion) on March 26, 2020, designed to help millions of low-income house-holds withstand a 21-day lockdown. This package was supplemented by the unscheduled RBI Monetary and Credit Policy on March 27, 2020. The RBI acted decisively by reducing the Repo rate by 75 bps to 4.4 per cent and reducing the Reverse Repo by 90 bps to 4 per cent, three-month moratorium on payment of instalments of Term Loan outstanding and deferment of interest on working capital facilities by 3 months.
The global economy is expected to slump into recession in 2020. Recession is technically defined as two successive quarters of negative growth. The sharp reduction in international crude oil prices could improve India’s terms of trade, but the gains are not expected to offset the drag from the shutdown and loss of external demand.
The Chinese character of crisis represents both danger and opportunity. Hence we need to focus on these aspects:
Global Diversification: In the last three decades, China has become the global factory. The disruption in supply of finished goods for global markets, and raw materials have led to an increased awareness of concentration risks. Companies are increasingly exploring the possibilities of diversifying their manufacturing and supply chains to avoid the perils of putting all one’s eggs in the same China basket. Hence manufacturing facilities will be set up in India by corporations from all over the world. Top US and Japanese companies have already started exiting China. We should leverage this to our advantage by streamlining our infrastructure, quality of labor and policy framework so that China’s loss could be India’s gain.
No disruption in global supply chain: The government must ensure that there is no disruption in the global supply chain. With industrial network, abundant natural resources and relatively cheap workforce, India could attract manufacturers as an alternative base, particularly specialty chemicals, fertilisers and pesticides (China had a 20 per cent share in the world market last year).
Thrust to MSMEs: MSMEs are the basis of the Indian economy, employing about 12 crore, contributing 34 per cent of India’s manufacturing output and 45 per cent of India’s exports. But they are quite vulnerable and have minimal reserves to meet difficulties. The lockdown has left them with unmet expenses, utility bills, rents, salaries. But payments owed to these units are stuck, creating a double squeeze.
On April 15, the government announced certain relaxations, including permitting the operations of IT and IT-enabled services (up to 50 per cent strength), e-commerce companies, courier services, industries operating in rural areas, manufacturing and other industrial establishments in special economic zones, export-oriented units, and industrial estates and townships subject to the condition that transportation and accommodation facilities on site must be provided for workers.
According to an assessment by the Federation of Indian Export Organisations (FIEO), the relaxations will help restart about 80-85 per cent of export-ORIENTED manufacturing units. If these units can operate by early may, it would help them to pay wages for May. Further, restarting labour-intensive industries like food processing and construction in rural areas would generate income for migrant labourers. Allowing transport, warehousing and cold storage would ensure a smoother functioning of the supply chain.
Businesses have started facing massive working capital/cash flow issues and these will continue even post lockdown because of reduced demand. MSME and startups are the worst hits. Though government has taken steps via SIDBI and other schemes to help MSMEs but we need to do more. Government can also procure from MSMEs and startups thus, helping them sustain.
Restoring pre-COVID levels of purchase could take six months or more. Until then, businesses and workers need to brace for drastic cuts in demand, salaries and jobs. But with speedy action, the government could significantly ease the damage. India can present itself as a credible alternate to increase its textile and apparel exports share. Post-coronavirus, some brands will follow the strategy of diversification and reduce their dependence on China to prevent any such situation in the future. Other promising areas include minerals and metals, homeware, ceramic tiles, engineering goods, furniture, etc.
Health & Hygiene: Aspects of hygiene include a higher demand for all offerings leading to healthier mind – yoga, meditation and personal well-being products and services.
Online tools: The combined impact of businesses transitioning to a digital model, online meetings becoming mainstream and a large number of employees working from home will increase demand for online tools and Apps for communication and collaboration as well. Online methods of skilling, up-skilling and re-skilling will grow, leading to spike in demand for good online education content.
With plummeting of the crude oil prices, FMCG companies will benefit by reduced production and transportation costs. While consumption could remain subdued even once lockdown is lifted, it does offer an opportunity for retail products, especially packaged food.
Digitisation: Faster digitisation of services and adoption of products will help stakeholders access those services seamlessly. This includes telecom operators, smartphones and their associated ecosystem, online gaming and OTT streaming content, use of robots in assembly line production and IoT (Internet of things) and digital transformation of enterprise, including cloud computing, collaborative tools and remote working capabilities.
Reverse migration: Light industries in villages, especially in food processing, will get a boost. India is the second biggest producer of fruits and vegetables. Startups should be encouraged to develop cold chain logistics with a proper startup ecosystem, viz., regular supply of power, water, proper roads connectivity, marketing, technological modernisation and credit
CATALYTIC ROLE OF RAJASTHAN STATE GOVERNMENT
The top priority today is to get the economy back on track while ensuring there is no resurgence of the disease.
Set aside funds to take care of our first responders (across all essential services) and patients.
A universal basic cash payment to every household, so that minimal household needs can be met even under a lockdown. A support of 3,000 rupees for every citizen would entail a spend of 2% of GDP.
Uninterrupted flow of critical supplies and services including food, healthcare, security, household provisions, power, telecom, money and banking.
Invest in much needed infrastructure, including hospitals, healthcare, sanitation and the use of technology in education.
The government should waive-off utility costs for the urban poor for three months, to reduce fiscal pressures. Similarly, MSMEs should be exempted from electricity duties for a period of three months. Taxes levied by local / state government may be exempted for 3 months for specific sectors.
The government along with the private sector must create an emergency framework to manufacture low-cost sanitisers, masks in large quantity, testing kits and protective gear, to support healthcare professionals. Additionally, manufacturing low-cost ventilators, digital thermometer and critical vaccines will help mitigate large scale loss of life in the country. CSR spending by corporate organisations should create a Covid-19 response fund, wherein private sector and citizens can make contributions.
A disaster management framework focused on creating a robust channel to provide information and create awareness is essential. The Government should ensure compulsory disaster response training program in public and private organisations and education institutes. The Government should also focus on creating a policy to empower domestic trade and industry to maintain continuity in the supply chain.
The National Agriculture Market (eNAM) launched on April 16, 2020 will leverage the physical infrastructure of mandis through an online trading portal, enabling buyers situated even outside the state to participate in trading at the local level. The mechanism proposes to integrate 585 regulated wholesale markets or APMCs under one electronic platform by 2018. It will allow farmers to sell their produce to highest bidders. This needs to be given a big push by the Rajasthan state government.
Going ahead, flattening the curve is of utmost importance. India is seriously battling this medical-cum-economic emergency, viz., isolation, social distancing and upscaling diagnostic and testing requirements. But given the magnitude of the crisis, there is a compelling need for coordinated and concerted efforts by all stake-holders, viz., the Central and State governments, doctors, nurses, planners and policy-makers and even those at the helm of affairs in the government and various tiers of administration. All of us must play our part in meeting this challenge.
The writer is the Governor of Rajasthan.
